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Is regular personal finance really unethical?
First of all, the term ethical is out. You are more likely to hear providers that consider themselves more environmentally and socially responsible as “responsible” rather than ethical.
“Positive” is another favoured term, as is “impact”. This is because the word ethical is apparently off-putting. It makes things sound niche, obscure, small and, well, not very good.
In fact, responsible personal finance is having a moment.
A provider is “responsible” if it invests its customers money into businesses, projects and activities that have a clear benefit for other people or the planet and operates according to a set of clearly defined values, such as fair pay, zero carbon dioxide emissions or transparent fees.
This more actively positive approach among companies is an evolution from the historic application of ethics to money, which usually meant not investing in, or “screening out” anything harmful, such as weapons manufacture, tobacco, or fossil fuels, rather than deliberately seeking to benefit society and the environment.
These days, providers have to be able to demonstrate carbon emission reductions, for example, to be considered environmentally beneficial, or show ways they have improved the lives of disadvantaged people in local communities.
Why should I choose ethical providers?
Or in fact: “Why shouldn’t you?” might be a more apt question, because as a result of low interest rates, the difference between the highest paying savings accounts and rates from responsible savings institutions, which have traditionally been lower, has closed.
This means that there is now no or very little cost to putting your savings with a provider that only invests your money in environmentally and socially beneficial projects, such as Charity Bank or Triodos, compared with what your money would earn in an account with a high street provider. Both of these institutions offer accounts with interest rates of around 1 per cent – comparable with the average available on the wider market.
If you invest, you might be interested to know that funds that are focused on sustainability, such as the WHEB Sustainable Fund or Impax Environmental Markets, now demonstrate growth on a par or better than mainstream funds that do not have this focus.
It is even possible to buy more responsible insurance products, from the likes of Naturesave.
Some surprisingly big names are taking their responsibilities seriously these days, including Aviva and Standard Life. Many large financial services firms see Environmental Social Governance – ESG for short – as a business opportunity, because it is a way of differentiating themselves from their competitors.
Is this a fad or a long-term shift?
Investors and savers who have started down the ethical route rarely turn back.
Increasing number of platforms and apps recognise there is demand for responsible products. Abundance Investment is a crowd-lending platform that allows renewable energy projects to raise money from the crowd. It has raised £30 million. EQ Investors, a robo-advice platform, has a 'Positive Impact Portfolio', which it says is showing increasing inflows. Independent financial advisers say they're increasingly being asked about ethical investment options by their clients.
The increase in both demand for and supply of ethical options has come about as a result of long-term, structural changes to global and national policy agreements on climate change and corporate governance. The 2015 United Nations Climate Change Conference, 'COP 21' and the UN Sustainable Development Goals initiative have helped to bring responsible investment to prominence, as has the work of campaign groups such as Share Action.
There is also more interest from consumers. The “millennial” generation of 18 to 34 year olds are more likely to buy products that match their values, according to research from the UK Sustainable Investments and Finance Association (UKSIF). More than 62 per cent of millennials back a fairtrade style label to help identify which financial products are ethical and sustainable and which are not, while nearly half said they would like their bank, pension or savings to provide a fossil free option (compared to only 28% of 55 and overs.)
Are ethical providers more risky?
There's no reason to expect your money is less safe with a responsible provider than it is with a big high street bank if that provider is regulated. Do remember to check that any financial services providers you use is regulated by the Financial Conduct Authority and all savings deposits should be covered by the FSCS.
There has in the past been some negative associations with green investment opportunities, such as Brazilian forestry, which have tainted the reputation of sustainable investments in general. These schemes were touted as “eco” but used this badge as a way to encourage people who shouldn’t have invested in them to put money in. Some of these schemes ran aground and investors lost their capital.
However, there are a wide number of very respectable fund managers, such as WHEB Asset Management and Impax Asset Management, now offering social, ecological, stewardship or sustainability fund options and a good range of stocks you can buy that are considered responsible companies. A great app – the Shape App, can help guide you through responsible stock picks.
The responsible finance kitemark to look out for
Good With Money recently launched a 'responsible finance kitemark' that is awarded to financial services firms that meet high environmental, social and customer standards. You can find out about it here http://goodegg.good-with-money.com/
Where can I get more information?
There are a number of websites now devoted to showing buyers of financial products which providers are doing their bit and which are not.
B Corp UK is an initiative that enables for-profit companies to apply for B-Corp status, which is proof of their strict commitment to social and environmental standards. UKSIF is the UK Sustainable Investment Forum and provides lots of information on how you can invest according to your values.
There are also some useful campaign websites: Share Action, Bank Track and Move Your Money are all useful places to check what your pension provider or bank has been up to with your cash and identify better places to move your money.
Rebecca O'Connor is a co-founder of Good With Money which was created to help consumers who want to manage their personal finances in an ethically sound way.
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Money Means is a news and information series written by independent financial and consumer journalists and experts*. FSCS launched Money Means in 2016 to help give people clear and useful information about personal finance, to increase their understanding and confidence when dealing with money.
*THE VIEWS EXPRESSED IN MONEY MEANS ARE OF THE WRITERS AND NOT OF FSCS AND SHOULD NOT BE REGARDED AS ADVICE.